EXHIBIT 13
1998 ANNUAL REPORT OF SHAREHOLDERS
Contents
1 President' Message
2 Selected Consolidated Financial Data
3 Management's Discussion and Analysis of Financial Condition and Results
of Operations
14 Consolidated Financial Statements
18 Notes to Consolidated Financial Statements
32 Report of Independent Auditors
32 Common Stock Information
33 Directors and Executive Officers
Company Profile
Industrial Bancorp, Inc. is a savings and loan holding company
headquartered in Bellevue, Ohio. Its sole subsidiary, Industrial Savings and
Loan Association, maintains ten full-service offices and one loan production
office serving communities in seven counties throughout north central Ohio.
Founded in 1890, Industrial Savings and Loan is a state-chartered savings
and loan association with deposits insured by the FDIC. Industrial Savings
and Loan provides traditional banking services including a wide selection of
mortgage, loan and deposit products to local consumers and businesses.
Dear Shareholders,
I am pleased to present our Annual Report to Shareholders for 1998.
This report will show that 1998 was yet another year of increased earnings,
continued growth and solid performance by Industrial Bancorp common stock.
The market value of our common stock rose $2.25 per share during 1998, an
increase of 13%. In addition, regular cash dividends increased to $0.59 per
share during 1998 from $0.48 per share during 1997, an increase of 23%.
Also during 1998, the Company continued its stock repurchase program
by authorizing the repurchase of an additional 5% of its total outstanding
common shares. Under the repurchase program, which began late in 1996, the
Company has been able to purchase 723,464 shares of outstanding stock as of
year-end 1998, with additional stock yet to be purchased.
Our subsidiary, Industrial Savings and Loan Association also completed
another very successful year in 1998. Having completed its 108th year of
operation, it continued to grow and prosper. One of the highlights of 1998
was the announcement of a new branch office to be located inside a local
grocery supercenter in Willard, Ohio. Construction is underway and should be
completed in the near future. We are excited about this opportunity to
expand our services to our existing customers and to add to our customer
base throughout the Willard area. Also during 1998, we upgraded all of our
teller equipment and computer software. This financial commitment, in excess
of $650,000, will enhance our ability to better serve our customers as well
as assist us in preparing for the year 2000 and beyond. This upgrade in
technology took place with very little disruption to our delivery of quality
service to our customers thanks to the hard work and dedication of all of
our employees. They are truly to be commended for their efforts.
The strength and vitality of Industrial Bancorp, Inc. continues, as
evidenced by the year-end financial report. We reached a record high of
$388.1 million in consolidated assets as of year-end 1998, which represents
a 7% increase from year-end 1997. During 1998 we sold $17.5 million of fixed
rate loans in the secondary market. Also, consolidated earnings exceeded
$5.7 million for the year, compared to $5.1 million for last year, an
increase of 12%. Earnings per share amounted to $1.22 per share for 1998
compared to $1.04 per share for 1997, an increase of 17%. Lending remained
very strong in 1998, as we originated $118.8 million in new loans, which
represents a 16% increase over the previous year. Savings deposits increased
to $288.6 million as of year-end, which is also a new record.
On behalf of the directors, management and employees, I would like to
express our appreciation to you, our shareholders, for your confidence and
investment in Industrial Bancorp, Inc. and to our valued customers for their
continued support of Industrial Savings and Loan Association.
David M. Windau
President and Chief Executive Officer
SELECTED CONSOLIDATED FINANCIAL DATA
1998 1997 1996 1995 1994
--------------------------------------------------------
Selected financial condition data: (Dollars in thousands, except per share data)
Total assets $388,059 $364,023 $326,613 $322,994 $268,041
Investment securities 21,518 21,467 23,797 27,882 16,014
Loans receivable - net 326,972 321,669 285,803 259,124 235,537
Deposits 288,584 270,957 259,074 238,282 231,966
FHLB advances 35,000 29,000 2,000 - 6,000
Shareholders' equity (1) 60,741 60,862 62,104 81,055 27,616
Summary of earnings:
Interest income $ 30,562 $ 27,805 $ 25,468 $ 22,858 $ 19,024
Interest expense 15,825 14,065 11,863 11,236 9,181
--------------------------------------------------------
Net interest income 14,737 13,740 13,605 11,622 9,843
Provision for loan losses 200 186 180 180 200
--------------------------------------------------------
Net interest income after
provision for loan losses 14,537 13,554 13,425 11,442 9,643
Noninterest income 858 509 447 398 461
Noninterest expense 6,663 6,167 9,453 5,518 4,734
--------------------------------------------------------
Income before income tax 8,732 7,896 4,419 6,322 5,370
Income tax expense 3,028 2,783 2,020 2,149 1,752
--------------------------------------------------------
Net income $ 5,704 $ 5,113 $ 2,399 $ 4,173 $ 3,618
========================================================
Basic earnings per share (2) $ 1.22 $ 1.04 $ 0.47 $ 0.42 -
Diluted earnings per share (2) 1.19 1.03 0.47 0.42 -
Cash dividends per share (2) (3) 0.59 0.48 3.75 0.15 -
Selected financial ratios:
Return on average assets 1.50% 1.48% 0.75% 1.42% 1.42%
Return on average equity 9.36 8.38 3.62 8.21 14.33
Average equity to average assets 16.03 17.63 20.59 17.29 9.88
Interest rate spread 3.11 3.13 3.26 3.26 3.55
Net interest margin 3.95 4.05 4.32 4.04 3.94
Efficiency ratio (4) 43.28 43.85 68.14 46.60 46.85
Noninterest expense to average assets 1.75 1.78 2.94 1.88 1.85
Nonperforming assets to total assets 0.38 0.31 0.38 0.49 0.58
Nonperforming loans to total loans 0.45 0.32 0.42 0.60 0.62
Allowance for loan losses to total loans 0.59 0.54 0.53 0.52 0.50
Allowance for loan losses to
nonperforming loans 129.72 168.76 125.77 87.53 80.71
- --------------------
<F1> Shareholders' equity prior to the Conversion refers to members'
equity.
<F2> Per share data for 1995 is for the period from the date of the
Conversion, August 1, 1995, to December 31, 1995.
<F3> The amount for 1996 includes a $3.50 per share special return of
capital distribution.
<F4> Noninterest expense as a percentage of the sum of net interest income
after provision for loan losses and noninterest income.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
==============================================================================
In August 1995, Industrial Bancorp, Inc. ("Industrial Bancorp) acquired all
of the common shares issued by The Industrial Savings and Loan Association
("Industrial Savings") upon its conversion from a mutual savings and loan
association to a stock savings and loan association (the "Conversion").
Since the ownership of such shares constitutes the principal business of
Industrial Bancorp, the discussion below focuses principally on the
financial condition and results of operations of Industrial Savings.
The following discussion and analysis of Industrial Bancorp, Inc. and its
wholly-owned subsidiary, Industrial Savings and Loan Association, (together
referred to as the "Company") should be read in conjunction with and with
reference to the consolidated financial statements and accompanying notes
presented in this Annual Report beginning on page 14.
CHANGES IN FINANCIAL CONDITION
- ------------------------------------------------------------------------------
Total consolidated assets of the Company were $388.1 million at year-end
1998, an increase of $24.1 million from $364.0 million at year-end 1997.
Loans receivable increased $5.3 million to $327.0 million at year-end 1998
from $321.7 million at year-end 1997. Loan originations exceeded $100
million for the second year in a row, with 93% of the originations in the
one- to four-family residential mortgage and real estate construction loan
categories. Also during 1998, the Company experienced an unusual amount of
refinancings and sold $17.7 million of fixed-rate mortgage loans on the
secondary market. Investment securities held steady, totaling $21.5 million
at year-end in both 1998 and 1997. Maturities of U.S. Treasury and agency
securities totaling $6.0 million were replaced by purchases of the same
totaling $5.0 million and an increase of $768,000 in unrealized gains on
those securities during the year. Cash and cash equivalents were $28.5
million at year-end 1998, more than double the $10.8 million at year-end
1997. The Company has taken advantage of minor variations between long-term
and short-term interest rates to improve its liquidity position. Office
properties and equipment, net of accumulated depreciation, increased to $5.4
million at year-end 1998 from $5.0 million at year-end 1997. The increase is
principally due to the Company's substantial upgrade in technology,
primarily teller equipment and computer hardware and software.
Total deposits increased $17.6 million, or 6%, to $288.6 at year-end 1998
from $271.0 million at year-end 1997. Certificates of deposit increased
$12.1 million and transaction accounts, including passbook savings deposits,
increased $5.6 million. The Company has taken advantage of the favorable
interest rate environment and used advances from the Federal Home Loan Bank
("FHLB") to fund loan growth in excess of loan sales and deposit growth.
FHLB advances were $35.0 million at year-end 1998 compared to $29.0 million
at year-end 1997.
Shareholders' equity was $60.7 million at year-end 1998, compared to $60.9
million at year-end 1997. Net income of $5.7 million was offset by purchases
of 272,000 treasury shares at a cost of $5.5 million during 1998.
The table on the following page presents certain average-balance
information, as well as average yields on interest-earning assets and
average costs of interest-bearing liabilities for the years indicated. Such
yields and costs are derived by dividing income or expense by the average
monthly balance of interest-earning assets or interest-bearing liabilities,
respectively, for the years presented. Average balances are derived from
monthly ending balances, which do not vary significantly from daily average
balances.
1998 1997
Weighted average ---------------------------------- ----------------------------------
yield/rate at Average Average Average Average
12/31/98 balance Interest yield/rate balance Interest yield/rate
--------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits 4.68% $ 18,656 $ 708 3.79% $ 11,696 $ 436 3.73%
Investment securities (1) 5.99 20,396 1,344 6.59 23,053 1,539 6.68
Mortgage-backed securities 10.48 345 34 9.98 497 51 10.26
Loans receivable (2) 8.04 333,775 28,476 8.53 304,397 25,779 8.47
------------------- -------------------
Total interest-earning assets 7.69 373,172 30,562 8.19 339,643 27,805 8.19
Noninterest-earning assets:
Cash and noninterest-bearing
deposits 1,109 1,051
Office properties and equipment 5,302 4,983
Other nonearning assets 2,371 1,832
Allowance for loan losses (1,832) (1,652)
-------- --------
Total assets $380,122 $345,857
======== ========
Interest-bearing liabilities:
Deposits:
NOW accounts 2.90 $ 16,139 355 2.20 $ 14,084 327 2.32
Money market accounts 3.00 4,391 133 3.03 4,323 130 3.01
Passbook savings accounts 3.10 53,014 1,626 3.07 53,079 1,644 3.10
Certificates of deposit 5.54 202,198 11,516 5.70 189,887 10,904 5.74
------------------- -------------------
Total deposits 4.80 275,742 13,630 4.94 261,373 13,005 4.98
FHLB advances 6.09 35,692 2,195 6.15 16,615 1,060 6.38
------------------- -------------------
Total interest-bearing
liabilities 4.94 311,434 15,825 5.08 277,988 14,065 5.06
Noninterest-bearing liabilities 7,763 6,882
-------- --------
Total liabilities 319,197 284,870
======== ========
Shareholders' equity 60,925 60,987
-------- --------
Total liabilities and
shareholders' equity $380,122 $345,857
======== ========
Net interest income $14,737 $13,740
======= =======
Interest rate spread 2.75% 3.11% 3.13%
Net interest margin (4) 3.95% 4.05%
Average interest-earning assets
to average interest-bearing
liabilities 119.82% 122.18%
1996
----------------------------------
Average Average
balance Interest yield/rate
----------------------------------
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 13,629 $ 649 4.76%
Investment securities (1) 28,289 1,712 6.05
Mortgage-backed securities 660 67 10.15
Loans receivable (2) 271,998 23,040 8.47
-------------------
Total interest-earning assets 314,576 25,468 8.10
Noninterest-earning assets:
Cash and noninterest-bearing
deposits 933
Office properties and equipment 5,019
Other nonearning assets 2,596
Allowance for loan losses (1,557)
--------
Total assets $321,567
========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 12,778 298 2.33
Money market accounts 4,653 140 3.01
Passbook savings accounts 52,872 1,631 3.08
Certificates of deposit 174,590 9,772 5.60
-------------------
Total deposits 244,893 11,841 4.84
FHLB advances 462 22 4.76
-------------------
Total interest-bearing
liabilities 245,355 11,863 4.84
Noninterest-bearing liabilities 10,005
--------
Total liabilities 255,360
Shareholders' equity 66,207
--------
Total liabilities and
shareholders' equity $321,567
========
Net interest income $13,605
=======
Interest rate spread 3.26%
Net interest margin (4) 4.32%
Average interest-earning assets
to average interest-bearing
liabilities 128.21%
- --------------------
<F1> Average yields have been computed based on the amortized cost of the
investment security.
<F2> Net of deferred loan fees, loan discounts and loans in process. Loan
fees included in interest income amounted to $1.0 million, $626,000
and $625,000 in 1998, 1997 and 1996.
<F3> Net interest income to average interest-earning assets.
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing
liabilities have affected the interest income and interest expense of the
Company during the years indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided for changes
attributable to (i) increases and decreases in volume (change in volume
multiplied by prior year rate), (ii) increases and decreases in rate (change
in rate multiplied by prior year volume) and (iii) total increases and
decreases in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate.
1998 vs. 1997 1997 vs. 1996
-------------------------------- -----------------------------
Increase(decrease) Increase(decrease)
due to Total due to Total
------------------ increase ------------------ increase
Volume Rate (decrease) Volume Rate (decrease)
--------------------------------------------------------------------
(In thousands)
Interest income attributable to:
- --------------------------------
Interest-bearing deposits $ 265 $ 7 $ 272 $ (84) $(129) $ (213)
Investment securities (175) (20) (195) (338) 165 (173)
Mortgage-backed securities (16) (1) (17) (17) 1 (16)
Loans receivable 2,505 192 2,697 2,744 (5) 2,739
------------------------------------------------------------------
Total interest income 2,579 178 2,757 2,305 32 2,337
Interest expense attributable to:
- ---------------------------------
Deposits:
NOW accounts 46 (18) 28 30 (1) 29
Money market accounts 2 1 3 (10) - (10)
Passbook savings accounts (2) (16) (18) 6 7 13
Certificates of deposit 702 (90) 612 873 259 1,132
------------------------------------------------------------------
Total deposits 748 (123) 625 899 265 1,164
FHLB advances 1,175 (40) 1,135 1,028 10 1,038
------------------------------------------------------------------
Total interest expense 1,923 (163) 1,760 1,927 275 2,202
------------------------------------------------------------------
Increase(decrease) in net interest income $ 656 $341 $ 997 $ 378 $(243) $ 135
==================================================================
COMPARISON OF OPERATING RESULTS
- ------------------------------------------------------------------------------
Earnings Summary. The Company had consolidated net income of $5.7 million
for 1998, compared to $5.1 million for 1997 and $2.4 million for 1996. The
reduced amount in 1996 was due principally to two separate, but individually
significant, events that occurred during 1996. The first was the special
assessment levied by the Federal Deposit Insurance Corporation upon
institutions with deposits insured by the Savings Association Insurance Fund
("SAIF"). The second was the impact of the $3.50 per share special return of
capital distribution on shares held in trust for the Company's Employee
Stock Ownership Plan ("ESOP") but not allocated to ESOP participants. The
Company recorded approximately $2.7 million in expense related to these two
events.
Net Interest Income. Net interest income of the Company is a function of the
difference, or spread, between the average yield earned on loans and other
interest-earning assets and the average rate paid on deposits and borrowings
as well as the relative amounts of such assets and liabilities. The interest
rate spread is affected by the economic and competitive factors that
influence interest rates, loan demand and deposit flows.
Net interest income increased to $14.7 million in 1998, compared to $13.7
million in 1997 and $13.6 million in 1996. Total interest income increased
to $30.6 million in 1998, compared to $27.8 million in 1997 and $25.5
million in 1996. The increases were largely due to average loans being $29.4
million higher in 1998 than in 1997 and $32.4 million higher in 1997 than in
1996. Interest and fees on loans totaled $28.5 million in 1998, compared to
$25.8 million in 1997 and $23.0 million in 1996. The average yield earned on
loans was 8.53% for 1998 and 8.47% for both 1997 and 1996. Interest earned
on investment securities declined to $1.3 million in 1998 compared to $1.5
million in 1997 and $1.7 million in 1996 while income from interest-bearing
deposits has increased to $708,000 in 1998 compared to $436,000 in 1997 and
$649,000 in 1996. The Company allowed the average balance of its investment
portfolio to decline in favor of shorter term, more liquid investments due
to the flat yield curve in 1998. Additional investments were limited during
1997 due to the excess growth of loans over deposits, without any loan
sales, and the resultant increased use of FHLB advances to fund the excess.
Total interest expense increased to $15.8 million in 1998, compared to $14.1
million in 1997 and $11.9 million in 1996. The increases were principally
due to the increased use of FHLB advances, which averaged $35.7 million in
1998, compared to $16.6 million in 1997 and $462,000 in 1996. Increased
reliance upon FHLB advances began in 1997 and continued in 1998 as the
growth in average deposits, from $244.9 million in 1996 to $261.4 million in
1997 and $275.7, did not keep pace with loan demand. The Company has
diminished some of its reliance upon FHLB advances by selling $17.7 million
of mortgage loans on the secondary market in 1998. The average rate paid for
deposits decreased to 4.94% in 1998 from 4.98% in 1997 as the maturity of
the deposit portfolio, particularly certificates of deposit, shifted to
shorter-term, lower yielding deposits. The average rate paid for deposits
increased to 4.98% in 1997 from 4.84% in 1996 as the mix in the deposit
portfolio shifted to a greater percentage of higher yielding certificates of
deposit from lower yielding transaction accounts.
Yields Earned and Rates Paid. The spread between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities
remained relatively stable, reflecting the interest rate environment,
declining only slightly to 3.11% in 1998 from 3.13% in 1997. The decline in
the interest rate spread from 3.26% in 1996 to 3.13% in 1997 was a result of
the initiation of treasury stock purchases, which replaced a noninterest-
bearing funding source with interest-bearing FHLB advances.
The excess of average interest-earning assets over average interest-bearing
liabilities remained steady at $61.7 million for both 1998 and 1997,
compared to $69.2 million for 1996. The ratio of average interest-earning
assets to average interest-bearing liabilities was 119.82% for 1998,
compared to 122.18% for 1997 and 128.21% for 1996.
Provision for Loan Losses. The Company maintains an allowance for loan
losses in an amount which, in management's judgment, is adequate to absorb
probable losses inherent in its loan portfolio. The amount of the provision
which is charged against earnings each year and added to the allowance is
based upon management's ongoing review of such factors as historical loss
performance, general prevailing economic conditions, changes in the size and
composition of the loan portfolio and considerations relating to specific
loans, including the ability of the borrower to repay the loan and the
estimated value of the underlying collateral.
The foregoing statement regarding the adequacy of the allowance for loan
losses is a "forward-looking " statement within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Factors that could affect the adequacy of
the allowance for loan losses include, but are not limited to, the
following: (1) changes in the national and local economy which may
negatively impact the ability of borrowers to repay their loans and which
may cause the value of real estate and other properties that secure
outstanding loans to decline; (2) unforeseen adverse changes in
circumstances with respect to certain large loans; (3) decreases in the
value of collateral securing consumer loans to amounts equal to less than
the outstanding balances of the consumer loans; and (4) determinations by
various regulatory agencies that Industrial Savings must recognize additions
to its loan loss allowance based on such regulators' judgment of information
available to them at the time of their examinations.
The provision for loan losses was $200,000 in 1998, compared to $186,000 in
1997 and $180,000 1996. The Company had $14,000 in charge-offs during 1998,
compared to $2,000 in 1997 and none in 1996. Recoveries totaled $2,000 in
1998 and $1,000 in both 1997 and 1996. Nonperforming loans were $1.5 million
at year-end 1998, compared to $1.0 million at year-end 1997 and $1.2 million
at year-end 1996. At year-end 1998, the allowance for loan losses was
129.72% of nonperforming loans and .59% of total loans compared to 168.76%
and .54% at year-end 1997. Management determined that a provision for loan
losses was warranted in 1998 based on the increased level of nonperforming
loans and the growth in loans receivable during 1998.
Noninterest Income. Noninterest income increased to $858,000 in 1998,
compared to $509,000 in 1997 and $447,000 in 1996. Service fees related to
the growing deposit base and expanding ATM usage contributed largely to
these increases during each of the three years. In 1998, income of $174,000
was recognized as a result of the sale of mortgage loans on the secondary
market.
Noninterest Expense. Noninterest expense amounted to $6.7 million in 1998,
compared to $6.2 million in 1997 and $9.5 million in 1996. The amount for
1996 was significantly higher because of the industry-wide special SAIF
assessment and the employee benefits expense associated with accounting for
the special return of capital distribution on unallocated ESOP shares.
Salaries and employee benefits were $3.4 million in 1998, compared to $3.1
million in 1997 and $4.3 million in 1996. The expense was higher in 1996
due principally to the recording of $1.2 million associated with the $3.50
per share special return of capital distribution related to unallocated ESOP
shares. Salaries and employee benefits were also affected by the
implementation of the MRP in 1996, by increases in ESOP expense as the value
of the Company's stock continues to rise, and by normal pay increases.
State franchise tax has decreased from $843,000 in 1996 to $524,000 in 1997
and $442,000 in 1998, due to intercompany transfers of capital from
Industrial Savings to Industrial Bancorp in 1998 and 1997. In addition to
reducing the amount of state franchise tax paid, the transfer will provide
the Company with greater flexibility in the future. Federal deposit
insurance premiums increased to $168,000 in 1998 compared to $135,000 in
1997, as a result of the growth in deposits. The $2.1 million of insurance
premiums in 1996 included the $1.5 million special assessment upon SAIF-
insured deposits.
Data processing and related fees, which are based on the outstanding number
of loan and deposit accounts, increased to $437,000 in 1998 from $370,000 in
1997 and $355,000 in 1996. Total occupancy and equipment and depreciation
expense increased to $757,000 for 1998, compared to $638,000 for 1997 and
$601,000 in 1996, due principally to the significant upgrade in technology
the Company made during 1998. Advertising expense has remained relatively
stable totaling $188,000 for 1998, down from $194,000 in 1997, which was up
from $186,000 in 1996. Other expenses increased $52,000 in 1998 compared to
1997, and $72,000 in 1997 compared to 1996, due principally to increases in
lending activity.
Income Tax Expense. Fluctuations in income tax expense are primarily
attributable to the change in income before taxes. Income before taxes
amounted to $8.7 million in 1998, compared to $7.9 million in 1997 and $4.4
million in 1996. The Company's effective tax rates were 34.7% in 1998,
compared to 35.2% in 1997 and 45.7% in 1996. The higher effective tax rate
in 1996 was because the special return of capital distribution as applied to
unallocated ESOP shares was not deductible for tax purposes.
ASSET QUALITY
- ------------------------------------------------------------------------------
The Company has consistently maintained a high quality loan portfolio, as
evidenced by its level of nonperforming assets which consists of loans
accounted for on a nonaccrual basis, accruing loans past due 90 days or
more, and real estate acquired through or instead of foreclosure.
Nonperforming assets were $1.4 million at year-end 1998, compared to $1.1
million at year-end 1997 and $1.2 million at year-end 1996. As a percentage
of year-end total assets, nonperforming assets were 0.38% in 1998, 0.31% in
1997 and 0.38% in 1996.
The Company's allowance for loan losses has increased, consistent with
growth in the loan portfolio, over the past five years and stood at $1.9
million at year-end 1998 compared to $1.2 million at year-end 1994. As a
percentage of nonperforming loans, the allowance for loan losses has
increased from 80.71% at year-end 1994 to 129.72% at year-end 1998. Over the
last five years, the Company has experienced total charge-offs of $38,000
and total recoveries of $21,000.
ASSET AND LIABILITY MANAGEMENT
- ------------------------------------------------------------------------------
The Company is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing
liabilities. Exposure to interest rate risk is measured with the use of
interest rate sensitivity analysis to estimate the change in the Company's
"net portfolio value" ("NPV") in the event of hypothetical changes in
interest rates.
As part of its efforts to monitor and manage interest rate risk, the
Company's asset and liability committee reviews with the Board of Directors,
on a quarterly basis, reports provided by the Office of Thrift Supervision
("OTS") and considers methods of maintaining acceptable levels of changes in
NPV. The Company's asset and liability management is designed to minimize
the impact of sudden and sustained changes in interest rates on NPV. If
estimated changes to NPV are not within the limits established by the Board,
the Board may direct management to adjust the asset and liability mix to
bring interest rate risk within board-approved limits.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning assets and other assets and outgoing
cash flows on interest-bearing liabilities and other liabilities. The
application of the NPV methodology attempts to quantify interest rate risk
in the event of a sudden and sustained 1 to 4 percent increase or decrease
in market rates.
The following table presents, at year-end 1998, an analysis of the interest
rate risk of the Company, as measured by changes in NPV for instantaneous
and sustained parallel shifts of 1% to 4% increments in market interest
rates. The table also contains the policy limits set by the Board as the
maximum change in NPV that the Board deems advisable in the event of various
changes in interest rates. Such limits have been established with
consideration of the dollar impact of various rate changes and the strong
capital position of the Company.
Change in Net Portfolio Value
Board limit -----------------------------
Change in interest rate % change $ %
-----------------------------------------------------------------------
(In thousands)
+ 4.0% 80% (26,680) (51)
+ 3.0% 60 (18,960) (36)
+ 2.0% 40 (11,274) (22)
+ 1.0% 20 (4,434) (9)
0 - - -
- 1.0% 20 1,857 4
- 2.0% 40 3,335 6
- 3.0% 60 5,676 11
- 4.0% 80 7,046 14
Based on the above information, in the event that interest rates rise from
the recent low levels, the net interest income of the Company could be
negatively affected. Moreover, rising interest rates could negatively affect
the earnings of the Company due to diminished loan demand. The Company
attempts to mitigate interest rate risk by originating adjustable-rate loans
and by selling a portion of its of fixed-rate mortgage loans on the
secondary market to Freddie Mac.
NPV is calculated by the OTS using information provided by the Company.
Computation of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-off, and should not be relied upon
as indicative of actual results. Further the computations do not contemplate
any actions the Company may undertake in response to changes in interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------------------------------------
The Company's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities, which are
summarized as follows:
1998 1997 1996
-----------------------------
(In thousands)
Net income $ 5,704 $ 5,113 $ 2,399
Adjustments 744 (34) 2,062
-----------------------------
Net cash from operating activities 6,448 5,079 4,461
Net cash from investment activities (4,186) (32,584) (22,555)
Net cash from financing activities 15,502 30,864 (1,204)
-----------------------------
Net change in cash and cash equivalents 17,764 3,359 (19,298)
Cash and cash equivalents at beginning of year 10,772 7,413 26,711
-----------------------------
Cash and cash equivalents at end of year $28,536 $10,772 $ 7,413
=============================
The principal sources of funds for the Company are deposits, FHLB
borrowings, loan repayments, the sale of mortgage loans on the secondary
market, maturity of investment securities and funds generated through
operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and loan prepayments are more
influenced by interest rates, general economic conditions and competition.
The Company maintains a level of investment in liquid assets which is based
upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and
(iv) the objectives of the asset and liability management program of the
Company.
OTS regulations presently require the Company to maintain an average daily
balance of liquid assets, which may include, but are not limited to,
investments in U. S. Treasury and federal agency obligations and other
investments generally having maturities of five years or less, in an amount
equal to 4% of the sum of the Company's average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS
to reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Company may rely if necessary to fund
deposit withdrawals or other short-term funding needs. At year-end 1998, the
regulatory liquidity ratio of the Company was 7.90%. At such date, the
Company had commitments to originate loans and loans in process totaling
$12.8 million and commitments to sell loans totaling $341,000. The Company
considers its liquidity and capital reserves sufficient to meet its
foreseeable short-term and long-term needs.
The Company's savings and loan association is required by OTS regulations to
maintain specified minimum amounts of capital. At year-end 1998, the
association exceeded all applicable minimum capital requirements. The
association's actual capital and regulatory capital requirements at year-end
1998 were as follows:
Amount Percent of assets
----------------------------
(In thousands)
Tangible capital: (1)
Capital level $34,110 8.85%
Requirement 5,784 1.50
----------------------
Excess $28,326 7.35%
======================
Tier 1 (Core) capital: (1)
Capital level $34,110 8.85%
Requirement 11,569 3.00
----------------------
Excess $22,541 4.85%
======================
Risk-based capital: (2)
Capital level $36,018 17.21%
Requirement 16,740 8.00
----------------------
Excess $19,278 9.21%
======================
- --------------------
<F1> Tangible and Tier 1 (Core) capital percentages are based on adjusted
total assets of $385.6 million.
<F2> Risk-based capital percentages are based on risk-weighted assets of
$209.2 million.
YEAR 2000 COMPLIANCE ISSUES
- ------------------------------------------------------------------------------
The Company began addressing the Year 2000 compliance issue in 1996, with
the review and analysis of its customer delivery system, specifically its
teller terminals and related equipment. Early in 1997, the Company formed a
Year 2000 Committee, which includes senior management representatives, to
assess the potential risk, establish a budget, and develop and implement a
plan to mitigate the risk that might arise from the failures of computer
programming to recognize the Year 2000. The Year 2000 compliance program
established by the committee includes quarterly progress reports submitted
to the Board of Directors, contingency planning, and the completion of all
internal testing by the end of the first quarter of 1999.
Included in the assessment was the identification of technology applications
and systems that could be impacted by the Year 2000 date change and the
identification of any third-party vendors that impact the daily operations
of the Company. The Committee acknowledged that the greatest potential
impact upon the Company is the risk related to the Company's data processing
service bureau. The Committee also determined that the teller terminals and
related equipment then in use were not Year 2000 compliant and that the
manufacturer had no plans to correct the problem. Various other in-house
applications and third-party dependent equipment were identified which would
require testing for Year 2000 compliance.
The budget established as part of the compliance program consisted mainly of
the hardware and software purchases necessary to replace the then existing
customer delivery system with new Year 2000 compliant technology, primarily
computers and the related equipment. The renovation of this technology was
estimated at approximately $600,000. Other factors, such as software update
purchases, training and additional employee hours were also considered.
Beyond the technology conversion to the new customer delivery system, which
was completed by mid-year 1998, the primary task of the Committee's Year
2000 compliance program was the validation, or testing, of any application,
system or equipment recognized during assessment. Subsequent to the
installation of the new teller terminals and platform system, which was
completed by mid-year 1998, testing was completed which verified that the
new system was Year 2000 compliant. The highest priority and effort has been
devoted to monitoring the progress of testing associated with Fiserv, the
nationally recognized data processing service bureau under contract with the
Company to perform transaction processing. The Company has continually
assessed the validation of the Year 2000 compliance of this application,
which has been identified as mission critical to the Company's operations.
Fiserv's validation efforts have included a date handling strategy of the
host software, client task force proxy testing, third party vendor interface
testing, and application review, testing, and programming changes to both
the base system and individualized client packages of the OnLine Financial
teller/platform system supported and maintained by Fiserv. By year-end 1998,
all in-house equipment identified during assessment had been tested, with
the exception of automated teller machines, which are scheduled to have
validation completed by the end of the first quarter of 1999.
Vendors used by the Company have been identified and assessed for the impact
upon operations of the Company if they would be unable to provide services
due to Year 2000 noncompliance. The Company has also reviewed the potential
impact of Year 2000 noncompliance of large borrowers or significant
employers in our primary market area. The loan portfolio of the Company is
highly diversified with regard to individual borrowers and types of
businesses, with the largest segment being to one- to four-family
residential mortgage loans. The primary market area is not significantly
dependent upon one employer or industry. The Company does not anticipate any
significant or prolonged Year 2000 related difficulties generated by the
identified vendors, large borrowers, or local employer base that would
materially affect the Company's net income or cash flow.
The Company has also considered the risk arising from relationships with
customers of Industrial Savings, both borrowers and depositors. As these
customers both provide (through deposits) and use (through loans) the
majority of the funds available to the Company, there is a potential risk
that the Year 2000 issue could lead to increased demand for credit,
increased levels of nonperforming loans, or increased demand upon the
Company's liquidity. The Company has developed and made available to
customers and other interested parties an informational brochure explaining
the possible impact of the Year 2000 problems and what the Company has done
to mitigate such potential problems.
A contingency plan has been developed to insure the necessary policies and
procedures are in effect to mitigate potential interruptions in service that
the Company may experience as the Year 2000 begins. The Company has had a
disaster recovery plan in effect for many years, which has worked well when
events required its use. The Year 2000 Contingency Plan approved by the
Board of Directors has expanded the basic disaster recovery plan and
addressed issues specific to the potential risk associated with the Year
2000 problems. The greatest concern the Company has related to contingency
planning is the possible interruption of electrical power, which is a
contingency faced by all businesses.
The Company's efforts to devise and implement the Year 2000 compliance
program has cost approximately $650,000 to date. These costs principally
represent the hardware and software purchases associated with the update and
conversion of teller terminals in bringing the customer delivery system Year
2000 compliant. While incidental expense is expected in 1999, and although
the Company anticipates and has planned for an increased demand for
liquidity, the Year 2000 Committee estimates that the impact upon the
Company's results of operations and capital resources will be minimal.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------------------------------------------
The Financial Accounting Standards Board has issued new accounting standards
that are effective for the Company's consolidated financial statements for
the years ending after December 31, 1998.
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," issued in June 1998 and
effective for fiscal years beginning after June 15, 1999, addresses the
accounting for derivative instruments and certain derivative instruments
embedded in other contracts, and hedging activities. The statement
standardizes the accounting for derivative instruments by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," issued in October 1998, will allow, beginning in 1999, mortgage
loans that are securitized to be classified as trading, available for sale,
or in certain circumstances held to maturity. Currently these must be
classified as trading.
These statements are not expected to have a material effect on the Company's
consolidated financial position or results of operations since the Company
has not historically engaged in these activities.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, 1998 1997
- ------------------------------------------------------------------------
ASSETS
Cash and noninterest-bearing deposits $ 1,067 $ 1,273
Interest-bearing demand deposits 5,469 3,499
Overnight deposits 22,000 6,000
--------------------
Cash and cash equivalents 28,536 10,772
Investment securities available for sale,
at fair value 21,235 21,030
Investment securities held to maturity
(fair value: 1998 - $302; 1997 - $474) 283 437
Loans receivable - net 326,972 321,669
Federal Home Loan Bank stock 3,256 2,938
Office properties and equipment - net 5,387 4,972
Accrued interest receivable 2,051 1,985
Other assets 339 220
--------------------
Total assets $388,059 $364,023
====================
LIABILITIES
Deposits $288,584 $270,957
Federal Home Loan Bank advances 35,000 29,000
Accrued interest payable and other liabilities 3,734 3,204
--------------------
Total liabilities 327,318 303,161
--------------------
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized, 5,554,500 shares issued 34,669 34,669
Additional paid-in capital 2,472 1,879
Retained earnings 37,522 34,569
Accumulated other comprehensive income 2,101 1,333
Unearned employee stock ownership plan shares (3,100) (3,529)
Unearned compensation (1,227) (1,753)
Treasury stock, at cost (1998 - 723,464
shares; 1997 - 451,700 shares) (11,696) (6,306)
--------------------
Total shareholders' equity 60,741 60,862
--------------------
Total liabilities and shareholders' equity $388,059 $364,023
====================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
For the year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $28,476 $25,779 $23,040
Interest and dividends on investment securities 1,378 1,590 1,779
Interest on deposits 708 436 649
-----------------------------
30,562 27,805 25,468
-----------------------------
Interest expense
Interest on deposits 13,630 13,005 11,841
Interest on Federal Home Loan Bank advances 2,195 1,060 22
-----------------------------
15,825 14,065 11,863
-----------------------------
Net interest income 14,737 13,740 13,605
Provision for loan losses 200 186 180
-----------------------------
Net interest income after provision for loan losses 14,537 13,554 13,425
-----------------------------
Noninterest income
Service fees and other charges 635 466 401
Other 223 43 46
-----------------------------
858 509 447
-----------------------------
Noninterest expense
Salaries and employee benefits 3,430 3,117 4,291
State franchise tax 442 524 843
Federal deposit insurance premiums 168 135 2,060
Occupancy and equipment 368 352 330
Data processing 437 370 355
Depreciation 389 286 271
Advertising 188 194 186
Other 1,241 1,189 1,117
-----------------------------
6,663 6,167 9,453
-----------------------------
Income before income tax 8,732 7,896 4,419
Provision for income tax 3,028 2,783 2,020
-----------------------------
Net income $ 5,704 $ 5,113 $ 2,399
=============================
Basic earnings per share $ 1.22 $ 1.04 $ 0.47
Diluted earnings per share $ 1.19 $ 1.03 $ 0.47
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
For the year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
Net income $5,704 $5,113 $2,399
Other comprehensive income:
Unrealized gains/losses on securities, net of taxes 768 483 102
--------------------------
Comprehensive income $6,472 $5,596 $2,501
==========================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Unrealized
Gain on
Additional Securities Unearned Unearned
Common Paid in Retained Available ESOP Compen- Treasury
Stock Capital Earnings for Sale Shares sation Stock Total
---------------------------------------------------------------------------------------------
Balance at January 1, 1996 $54,110 $30,633 $ 748 $(4,436) $81,055
Net income 2,399 2,399
Capital distribution declared
($3.50 per share) (19,441) (19,441)
Purchase of treasury stock
(50,000 shares) $ (634) (634)
Cash dividends declared
($.25 per share) (1,278) (1,278)
Employee Stock Ownership Plan:
Capital distribution on
unallocated shares $1,553 1,553
Shares released 116 462 578
Management Recognition Plan:
Shares purchased $(2,630) (2,630)
Compensation earned 351 351
Change in unrealized gain on
securities available for sale 102 102
Other changes/adjustments 49 49
---------------------------------------------------------------------------------------------
Balance at December 31, 1996 34,669 1,669 31,803 850 (3,974) (2,279) (634) 62,104
Net income 5,113 5,113
Purchase of treasury stock
(401,700 shares) (5,672) (5,672)
Cash dividends declared
($.48 per share) (2,347) (2,347)
Employee Stock Ownership Plan:
Shares released 210 445 655
Management Recognition Plan:
Compensation earned 526 526
Change in unrealized gain on
securities available for sale 483 483
---------------------------------------------------------------------------------------------
Balance at December 31, 1997 34,669 1,879 34,569 1,333 (3,529) (1,753) (6,306) 60,862
Net income 5,704 5,704
Purchase of treasury stock
(271,764 shares) (5,466) (5,466)
Cash dividends declared
($.59 per share) (2,751) (2,751)
Exercise of stock options 16 76 92
Employee Stock Ownership Plan:
Shares released 415 429 844
Management Recognition Plan:
Compensation earned 162 526 688
Change in unrealized gain on
securities available for sale 768 768
---------------------------------------------------------------------------------------------
Balance at December 31, 1998 $34,669 $2,472 $37,522 $2,101 $(3,100) $(1,227) $(11,696) $60,741
=============================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 5,704 $ 5,113 $ 2,399
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 389 286 271
Provision for loan losses 200 186 180
Accretion of deferred loan fees (1,107) (674) (639)
FHLB stock dividends (224) (200) (176)
Net accretion on investment securities (41) (50) (55)
ESOP expense 844 655 1,794
MRP compensation expense 688 526 351
Net change in:
Deferred taxes 124 105 29
Accrued interest receivable and other assets (139) (637) 96
Accrued interest payable and other liabilities 10 (231) 211
-------------------------------
Net cash from operating activities 6,448 5,079 4,461
-------------------------------
Cash flows from investing activities
Proceeds from maturities of investment securities
available for sale 6,000 12,000 10,000
Purchases of investment securities available for sale (5,000) (9,008) (5,910)
Principal repayments and maturities of investment
securities held to maturity 154 124 205
Net increase in loans (4,442) (35,378) (26,220)
FHLB stock purchases (94) (93) (69)
Properties and equipment expenditures, net (804) (229) (561)
-------------------------------
Net cash from investing activities (4,186) (32,584) (22,555)
-------------------------------
Cash flows from financing activities
Net increase in deposits 17,627 11,883 20,792
Proceeds from FHLB advances 10,000 33,000 2,000
Repayment of FHLB advances (4,000) (6,000)
Capital distribution to shareholders (19,071)
Purchase of MRP shares (2,630)
Proceeds from exercise of stock options 92
Cash dividends paid (2,751) (2,347) (1,661)
Purchase of treasury stock (5,466) (5,672) (634)
-------------------------------
Net cash from financing activities 15,502 30,864 (1,204)
-------------------------------
Net change in cash and cash equivalents 17,764 3,359 (19,298)
Cash and cash equivalents at beginning of year 10,772 7,413 26,711
-------------------------------
Cash and cash equivalents at end of year $28,536 $10,772 $ 7,413
===============================
Cash paid during the year for:
Interest $15,765 $13,938 $11,655
Income taxes 2,707 2,947 1,780
Noncash transactions:
Transfer of loans to real estate owned 46 71
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include
Industrial Bancorp, Inc. and its wholly-owned subsidiary, Industrial Savings
and Loan Association, together referred to as "the Company". Intercompany
transactions and balances are eliminated.
Use of Estimates: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and disclosures
provided, and future results could differ. The allowance for loan losses and
fair values of financial instruments are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash, demand deposits with
other financial institutions and overnight deposits. Net cash flows are
reported for loan and deposit transactions.
Investment Securities: Investment securities are classified as held to
maturity and carried at amortized cost when management has the positive
intent and ability to hold to maturity. Investment securities are classified
as available for sale when they might be sold before maturity. Investment
securities available for sale are carried at fair value, with unrealized
gains and losses reported in other comprehensive income. Other securities
such as Federal Home Loan Bank stock are carried at cost.
Interest income includes amortization of purchase premium or discount.
Loans Receivable: Loans are reported at the principal balance outstanding,
net of unearned interest, deferred loan fees and costs, and an allowance for
loan losses. Loans held for sale are reported at the lower of cost or
market, on an aggregate basis.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term. Interest income is
not reported when full loan repayment is in doubt, typically when the loan
is impaired or payments are past due over 90 days.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan
losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
A loan is impaired if full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage or consumer loans, and on an individual loan
basis for other loans. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
Servicing Rights: Servicing rights are recognized as assets for purchased
rights and for the allocated value of retained servicing rights on loans
sold. Servicing rights are expensed in proportion to, and over the period
of, estimated net servicing revenues. Impairment is evaluated based on the
fair value of the rights, using groupings of the underlying loans as to
interest rates and then, secondarily, as to geographic and prepayment
characteristics. Any impairment of a grouping is reported as a valuation
allowance.
Real Estate Owned: Real estate acquired through or instead of foreclosure
is initially recorded at the fair value when acquired, establishing a new
cost basis. If fair value declines, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
Office Properties and Equipment: Office properties and equipment are stated
at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives on an accelerated basis, except for buildings for
which the straight line basis is principally used.
Stock Compensation: Employee compensation expense under stock option plans
is reported if options are granted below market price at grant date. Pro
forma disclosures of net income and earnings per share are shown using the
fair value method of Statement of Financial Accounting Standards (SFAS)
No.123 to measure expense for options granted after 1994, using an option
pricing model to estimate fair value.
Income Taxes: Income tax expense is the total of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for
the temporary differences between carrying amounts and tax bases of assets
and liabilities, computed using enacted tax rates.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but
not yet allocated to participants, is shown as a reduction of shareholders'
equity. Compensation expense is based on the market price of shares as they
are committed to be released to participant accounts. Dividends on allocated
ESOP shares reduce retained earnings; dividends on unearned ESOP shares
reduce debt and accrued interest.
Financial Instruments: Financial instruments include credit instruments,
such as commitments to make loans, issued to meet customer financing needs.
The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay.
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the
estimates.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income consists of unrealized
gains and losses on investment securities which are also recognized as
separate components of equity. The accounting standard that requires
reporting comprehensive income first applies for 1998, with prior
information restated to be comparable.
Earnings Per Share: Basic earnings per share is net income divided by the
weighted average number of common shares outstanding during the period. ESOP
shares are considered outstanding for this calculation unless unearned.
Diluted earnings per share includes the dilutive effect of additional
potential common shares issuable under stock options.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe that there are now any
such matters that would have a material effect on the financial statements.
Reclassifications: Certain items in the 1997 and 1996 financial statements
have been reclassified to correspond with the 1998 presentation.
NOTE 2 - INVESTMENT SECURITIES
Investment securities as of the end of the year were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
Available for sale
1998
- ----
U.S. Treasury securities $12,003 $ 153 $12,156
U.S. agency securities 6,002 40 6,042
Federal Home Loan Mortgage
Corporation preferred stock 46 2,991 3,037
-------------------- -------
$18,051 $3,184 $21,235
==================== =======
1997
- ----
U.S. Treasury securities $15,971 $ 78 $ (1) $16,048
U.S. agency securities 2,993 18 3,011
Federal Home Loan Mortgage
Corporation preferred stock 46 1,925 1,971
------------------------------------------------
$19,010 $2,021 $ (1) $21,030
================================================
Held to maturity
1998
- ----
Mortgage-backed securities $ 283 $ 19 $ 302
======= ====== =======
1997
- ----
Mortgage-backed securities $ 437 $ 37 $ 474
======= ====== =======
Contractual maturities of debt securities at year-end 1998 were as follows:
Amortized Estimated
Cost Fair Value
-----------------------
Available for sale
Due in one year or less $10,007 $10,033
Due after one year through five years 7,998 8,165
--------------------
18,005 18,198
Federal Home Loan Mortgage Corporation preferred stock 46 3,037
--------------------
$18,051 $21,235
====================
Held to maturity
Mortgage-backed securities $ 283 $ 302
====================
No investment securities were sold during 1998, 1997 or 1996. Investment
securities pledged at year-end 1998 and 1997 had costs of $15.4 million and
$15.5 million and were pledged to secure public deposits.
NOTE 3 - LOANS RECEIVABLE
Loans receivable as of the end of the year were as follows:
1998 1997
---------------------
Real estate loans:
One- to four-family $279,237 $278,438
Home equity 16,624 15,407
Construction 17,858 20,013
Multi-family 9,165 8,170
Nonresidential 10,979 10,521
---------------------
Total real estate loans 333,863 332,549
Commercial loans 451 297
Consumer loans 4,859 4,408
---------------------
Total loans 339,173 337,254
Less:
Undisbursed construction loan funds (6,251) (9,672)
Net deferred loan fees (4,020) (4,171)
Allowance for loan losses (1,930) (1,742)
---------------------
$326,972 $321,669
=====================
Activity in the allowance for loan losses for the year was as follows:
1998 1997 1996
----------------------------
Balance at beginning of year $1,742 $1,557 $1,376
Provision for losses 200 186 180
Charge-offs (14) (2) -
Recoveries 2 1 1
----------------------------
Balance at end of year $1,930 $1,742 $1,557
============================
No loans were classified as impaired at year-end 1998, 1997 and 1996 or
during the years then ended. Non-performing loans as of the end of the year
were as follows:
1998 1997
----------------
Loans accounted for on a nonaccrual basis $ 976 $ 738
Accruing loans past due 90 days or more 512 294
----------------
Total non-performing loans $1,488 $1,032
================
Loans serviced by others, which are not reported as assets, total $21.1
million and $4.8 million at year-end 1998 and 1997. Activity for capitalized
mortgage servicing rights was as follows:
1998
----
Balance at beginning of year $ -
Additions 177
Amortized to expense (8)
----
Balance at end of year $169
====
Loans to principal officers, directors and their related businesses,
aggregating $60,000 or more to any one related party, were as follows:
1998
----
Balance at beginning of year $ 95
Loans originated 211
Repayments (107)
----
Balance at end of year $199
====
NOTE 4 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment as of the end of the year were as follows:
1998 1997
----------------
Land $1,932 $1,829
Buildings and improvements 5,065 5,058
Furniture and equipment 1,489 1,083
Construction in progress 20 -
----------------
Total cost 8,506 7,970
Accumulated depreciation 3,119 2,998
----------------
$5,387 $4,972
================
NOTE 5 - DEPOSITS
Deposits as of the end of the year were as follows:
1998 1997
--------------------
Noninterest-bearing demand deposits $ 4,009 $ 3,287
Money market accounts 4,713 4,049
NOW accounts 17,750 15,277
Passbook savings accounts 54,258 52,622
Certificates of deposit 207,854 195,722
--------------------
$288,584 $270,957
====================
Certificates of deposit with balances of $100,000 or more were $51.7 million
and $44.3 million at year-end 1998 and 1997.
Scheduled maturities of certificates of deposit at year-end 1998 were as
follows:
Amount
--------
1999 $142,396
2000 38,002
2001 20,128
2002 3,995
2003 2,103
Thereafter 1,230
--------
$207,854
========
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank at year-end were as follows:
1998 1997
------------------------ ------------------------
Year of Maturity Interest Rate Amount Interest Rate Amount
------------------------------------------------------------------------------------
1998 5.80 - 6.15% $ 4,000
1999 5.75 - 6.30% $ 7,000 6.00 - 6.30 7,000
2000 6.30 - 6.45 7,000 6.30 - 6.60 7,000
2001 5.73 - 6.21 9,000 6.21 2,000
2002 5.95 - 6.25 9,000 5.95 - 6.25 9,000
2003 5.83 3,000
------- -------
$35,000 $29,000
======= =======
Weighted average interest rate 6.11% 6.20%
These advances were collateralized by $52.5 million and $43.5 million of
residential mortgage loans under a blanket lien agreement and by Federal
Home Loan Bank stock at year-end 1998 and 1997.
NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN
Employees of the Company participate in an employee stock ownership plan
(ESOP). The ESOP borrowed from the Company to acquire 443,610 shares of
stock at $10 per share. The Company makes discretionary contributions to the
ESOP, as well as paying dividends on unallocated shares to the ESOP, and the
ESOP uses funds it receives to repay the loan. As loan payments are made,
ESOP shares are allocated to participants based on relative compensation and
expense is recorded. Dividends on allocated shares increase participant
accounts. Participants receive the shares at the end of employment.
Contributions to the ESOP during 1998, 1997 and 1996 were $398,000, $542,000
and $588,000. ESOP expense for 1998, 1997 and 1996 was $844,000, $655,000
and $1.8 million.
Shares held by the ESOP as of the end of the year were as follows:
1998 1997
--------------------
Shares allocated to participants 133,585 90,728
Unearned shares 308,350 352,882
--------------------
Total ESOP shares 441,935 443,610
====================
Fair value of unearned shares (in thousands) $ 6,167 $ 6,264
NOTE 8 - STOCK OPTION AND INCENTIVE PLAN
Options to buy stock of the Company are granted to directors and certain key
employees under the Stock Option and Incentive Plan, which provides for
issue of up to 555,450 options. Exercise price is the market price at date
of grant. The maximum option term is ten years, and options vest over five
years.
A summary of activity in the plan is as follows:
1998 1997
-------------------- -------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
-------------------------------------------
Outstanding at beginning of year 388,815 388,815
Exercised (6,000) $11.00 -
------- -------
Outstanding at end of year 382,815 388,815
======= =======
Options exercisable at year-end 149,526 77,763
No options were granted in 1998 or 1997. All options issued to date, and
therefore all outstanding or exercisable at year-end, have an exercise price
of $11.00 per share.
Had compensation cost for stock options been measured using FASB Statement
No. 123, net income and earnings per share would have been the pro forma
amounts indicated below. The pro forma effect may increase in the future if
more options are granted.
1998 1997
------------------------ ------------------------
As reported Pro forma As reported Pro forma
----------------------------------------------------
Net income $5,704 $5,521 $5,113 $4,930
Basic earnings per share 1.22 1.18 1.04 1.01
Diluted earnings per share 1.19 1.15 1.03 0.99
The pro forma effects are computed using option pricing models which used
the following weighted-average assumptions as of grant date: a risk-free
interest rate of 6.34%, a dividend yield of 3.86%, volatility factors of the
expected market price of the Company's common stock of 40.8%, and an
expected life of the option of 7.5 years. Based on these assumptions the
estimated fair value of the options granted during 1996 was $3.57 per share.
NOTE 9 - MANAGEMENT RECOGNITION PLAN
The management recognition plan (MRP) provides to directors and certain key
employees an ownership interest in the Company designed to compensate such
directors and key employees for services to the Company. The Company
contributed sufficient funds to enable the MRP to purchase and issue as
awards 222,180 common shares of the Company. The shares awarded vest over a
five-year period beginning in 1996. Compensation expense, which is based
upon the cost of the shares, was $526,000 in both 1998 and 1997 and $351,000
in 1996.
NOTE 10 - INCOME TAXES
The provision for income tax was as follows:
1998 1997 1996
--------------------------
Current expense $2,904 $2,678 $1,991
Deferred expense 124 105 29
--------------------------
$3,028 $2,783 $2,020
==========================
Effective tax rates differ federal statutory rates applied to financial
statement income due to the following:
1998 1997 1996
--------------------------
Income tax computed at the
statutory federal rate $2,969 $2,685 $1,502
Effect of ESOP deduction 196 72 579
Effect of MRP awards expense (16) (16) -
Other (121) 42 (61)
--------------------------
$3,028 $2,783 $2,020
==========================
Effective tax rate 34.7% 35.2% 45.7%
Deferred tax assets and liabilities as of the end of the year were as
follows:
1998 1997
----------------
Deferred tax assets
Deferred loan fees $1,020 $1,211
Accrued MRP awards 119 119
Construction period interest 16 17
Accrued vacation 38 36
ESOP shares allocated 77 57
Other 8 10
----------------
1,278 1,450
----------------
Deferred tax liabilities
Bad debt deduction (186) (350)
FHLB stock dividends (590) (515)
Unrealized gain on investment securities available for sale (1,082) (687)
Depreciation expense (111) (120)
Loan servicing rights (57) -
Accumulated accretion (31) (38)
----------------
(2,057) (1,710)
----------------
Net deferred tax asset /(liability) $ 779 $ (260)
================
The Company has not established a valuation allowance, as it is management's
belief that it has adequate taxable income and carrybacks to realize
recorded deferred tax assets.
Federal income tax laws provided additional bad debt deductions through
1987, totaling $4.2 million. Accounting standards do not require a deferred
tax liability to be recorded on this amount, which liability otherwise would
total $1.4 million at December 31, 1998. If the Association were liquidated
or otherwise ceases to be a thrift or if tax laws were to change, this
amount would be expensed. Under 1996 tax law changes, bad debts are based on
actual loss experience and tax bad debt reserves accumulated since 1987 are
to be reduced. This requires payment of approximately $495,000 annually over
six years beginning in 1998.
NOTE 11 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS
The Company's savings and loan association is subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt correction action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators.
Failure to meet capital requirements can initiate regulatory action. As of
December 31, 1998, the Company's savings and loan association is considered
well capitalized based on computed regulatory capital ratios.
Federal regulations limit all capital distributions, including cash
dividends, by savings associations. The regulation establishes a three-
tiered system of restrictions, with the greatest flexibility afforded to
thrifts which are both well-capitalized and given favorable qualitative
examination ratings.
Actual and required capital amounts (in thousands) and ratios as of the end
of the year were as follows:
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
----------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------
1998
- ----
Total capital
(to risk weighted assets) $36,018 17.21% $16,740 8.0% $20,925 10.0%
Tier 1 (core) capital
(to risk weighted assets) $34,110 16.30% $ 8,370 4.0% $12,555 6.0%
Tier 1 (core) capital
(to adjusted total assets) $34,110 8.85% $11,569 3.0% $19,282 5.0%
Tangible capital
(to adjusted total assets) $34,110 8.85% $ 5,784 1.5% N/A
1997
- ----
Total capital
(to risk weighted assets) $37,392 19.03% $15,718 8.0% $19,648 10.0%
Tier 1 (core) capital
(to risk weighted assets) $35,696 18.17% $ 7,859 4.0% $11,789 6.0%
Tier 1 (core) capital
(to adjusted total assets) $35,696 9.86% $10,866 3.0% $18,110 5.0%
Tangible capital
(to adjusted total assets) $35,696 9.86% $ 5,433 1.5% N/A
NOTE 12 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters
of credit and overdraft protection, are issued to meet customer financing
demands. These are agreements to provide credit or to support the credit of
others, as long as conditions established in the contract are met, and
usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk as of the end of the year
were as follows:
1998 1997
------------------ ------------------
Fixed Variable Fixed Variable
Rate Rate Rate Rate
----------------------------------------
Commitments to make loans $4,882 $ 1,638 $4,360 $1,000
Undisbursed construction loan funds 5,357 894 7,022 2,650
Unused lines of credit - 12,228 26 9,124
Commitments to make loans are generally made for 30 days or less. The fixed
rate loan commitments on mortgage loans have interest rates ranging from
6.25% to 9.75% and maturities ranging from 15 years to 30 years.
The Company was required by the Federal Reserve Bank to maintain cash
reserves of $500,000 and $436,000 as of year-end 1998 and 1997. These
reserves do not earn interest.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments as of the
end of the year were as follows:
1998 1997
----------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------------------------------------------------
Financial assets
Cash and cash equivalents $ 28,536 $ 28,536 $ 10,772 $ 10,772
Investment securities 21,518 21,537 21,467 21,504
Loans receivable, net 326,972 332,757 321,669 324,187
Federal Home Loan Bank stock 3,256 3,256 2,938 2,938
Accrued interest receivable 2,051 2,051 1,985 1,985
Financial liabilities
Deposits $(288,584) $(290,040) $(270,957) $(271,716)
FHLB advances (35,000) (35,581) (29,000) (29,015)
Accrued interest payable (769) (769) (709) (709)
The methods and assumptions used to estimate fair value are described as
follows. Carrying amount is the estimated fair value for cash and cash
equivalents, Federal Home Loan Bank stock, accrued interest receivable and
payable, demand deposits and variable rate loans or deposits that reprice
frequently and fully. Investment securities fair values are based on market
prices. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated
life and credit risk. Fair value of loans held for sale is based on market
quotes. Fair value of FHLB advances is based on current rates for similar
financing.
NOTE 14 - EARNINGS PER SHARE
The factors used in the earnings per share computation were as follows:
1998 1997 1996
--------------------------------------
Net income (in thousands) $ 5,704 $ 5,113 $ 2,399
Basic:
- -----
Weighted average common shares outstanding 5,006,690 5,276,908 5,547,881
Less: Average unallocated ESOP shares 331,454 375,137 420,501
--------------------------------------
Average shares 4,675,236 4,901,771 5,127,380
======================================
Basic earnings per share $ 1.22 $ 1.04 $ 0.47
Diluted:
- -------
Weighted average common shares outstanding
for basic earnings per share 4,675,236 4,901,771 5,127,380
Add: Dilutive effects of assumed exercises of stock options 110,299 62,644 7,833
--------------------------------------
Average shares and dilutive potential common shares 4,785,535 4,964,415 5,135,213
======================================
Diluted earnings per share $ 1.19 $ 1.03 $ 0.47
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31, 1998 1997
- ----------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 87 $ 538
Investment in subsidiary 36,211 37,029
Loan receivable from ESOP 3,327 3,697
Loan receivable from subsidiary 21,000 19,500
Other assets 90 99
------------------
$60,715 $60,863
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ (26) $ 1
Shareholders' equity 60,741 60,862
------------------
$60,715 $60,863
==================
CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
For the year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------
Interest income on loan from subsidiary $1,030 $ 287 $ 791
Dividends from subsidiary 9,000 26,500 -
Management fees expense (900) (60) (60)
Other operating expenses (78) (123) (167)
---------------------------
Income before income tax and undistributed subsidiary income 9,052 26,604 564
Provision for income taxes 17 35 192
Equity in undistributed subsidiary income (3,331) (21,456) 2,027
---------------------------
Net income $5,704 $ 5,113 $2,399
===========================
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the year ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------
Cash flows from operating activities
Net income $5,704 $ 5,113 $ 2,399
Adjustments:
Equity in undistributed subsidiary income 3,331 21,456 (2,027)
Dividends on unallocated ESOP shares (214) (194) (144)
Changes in other assets 9 (50) (38)
----------------------------
Net cash from operating activities 8,830 26,325 190
----------------------------
Cash flows from investing activities
Loans to subsidiary (9,000) (23,900) -
Principal repayment on loans to subsidiary 7,500 5,100 21,550
Principal repayment on loan to ESOP 370 370 370
----------------------------
Net cash from investing activities (1,130) (18,430) 21,920
----------------------------
Cash flows from financing activities
Capital distribution to shareholders - - (19,441)
Cash dividends paid (2,751) (2,347) (1,661)
Purchase of treasury stock (5,466) (5,672) (634)
Proceeds from exercise of stock options 66 - -
----------------------------
Net cash from financing activities (8,151) (8,019) (21,736)
----------------------------
Net change in cash and cash equivalents (451) (124) 374
Cash and cash equivalents at beginning of period 538 662 288
----------------------------
Cash and cash equivalents at end of period $ 87 $ 538 $ 662
============================
NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31 June 30 September 30 December 31
--------------------------------------------------
1998
Interest income $7,407 $7,621 $7,750 $7,784
Interest expense 3,806 3,938 4,069 4,012
----------------------------------------------
Net interest income 3,601 3,683 3,681 3,772
Provision for loan losses 45 55 55 45
Other income 141 173 234 310
Other expense 1,637 1,685 1,637 1,704
----------------------------------------------
Income before taxes 2,060 2,116 2,223 2,333
Provision for incomes taxes 702 722 757 847
----------------------------------------------
Net income $1,358 $1,394 $1,466 $1,486
==============================================
Basic earnings per share $ 0.29 $ 0.30 $ 0.31 $ 0.32
Diluted earnings per share 0.28 0.29 0.31 0.32
1997
Interest income $6,581 $6,846 $7,084 $7,294
Interest expense 3,187 3,423 3,657 3,798
----------------------------------------------
Net interest income 3,394 3,423 3,427 3,496
Provision for loan losses 49 47 45 45
Other income 111 111 120 167
Other expense 1,565 1,530 1,630 1,442
----------------------------------------------
Income before taxes 1,891 1,957 1,872 2,176
Provision for incomes taxes 671 674 642 796
----------------------------------------------
Net income $1,220 $1,283 $1,230 $1,380
==============================================
Basic earnings per share $ 0.24 $ 0.26 $ 0.25 $ 0.29
Diluted earnings per share 0.24 0.26 0.25 0.28
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Industrial Bancorp, Inc.
Bellevue, Ohio
We have audited the accompanying consolidated balance sheets of Industrial
Bancorp, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Industrial Bancorp, Inc. as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Cleveland, Ohio
January 15, 1999
- ------------------------------------------------------------------------------
COMMON STOCK INFORMATION
The common shares of Industrial Bancorp are listed on the Nasdaq Stock
Market under the symbol "INBI". There were 4,831,036 common shares
outstanding at year-end 1998, held of record by approximately 1,450
shareholders. The following dividend and market price information includes
daily high, low and closing sales prices of the common shares of Industrial
Bancorp for each period indicated.
Quarter ended High Low Last Dividend
-------------------------------------------------------
3/31/97 $13.00 $12.50 $12.63 $.10
6/30/97 14.00 12.00 13.69 .12
9/30/97 18.00 13.63 18.00 .12
12/31/97 18.38 17.25 17.75 .14
3/31/98 23.50 17.63 22.50 .14
6/30/98 25.25 18.31 19.00 .15
9/30/98 20.00 15.88 18.00 .15
12/31/98 20.25 17.00 20.00 .15
INDUSTRIAL BANCORP, INC.
Directors Annual Meeting
- ------------------------------------- -----------------------------------
Lawrence R. Rhoades The 1999 Annual Meeting of Share-
Chairman of the Board and Chief holders of Industrial Bancorp, Inc.
Financial Officer will be held on April 20, 1999, at
2:30 p.m., local time, at the
David M. Windau Bellevue Elks Lodge #1013, located
President and Chief Executive Officer at 214 West Main Street, Bellevue,
Ohio 44811. Shareholders are
Fredric C. Spurck cordially invited to attend.
President and Chief Executive Officer
Webster Industries, Inc. Form 10-K
-----------------------------------
Roger O. Wilkinson A copy of Industrial Bancorp's
Deputy Director Annual Report on Form 10-K, as
Huron County Alcohol, Drug Addiction filed with the Securities and
and Mental Health Services Board Exchange Commission, will be
available to shareholders at no
Graydon H. Hayward change upon request to:
President
Hayward Rigging & Construction, Inc. Industrial Bancorp, Inc.
211 N. Sandusky Street
Leon W. Maginnis Bellevue, Ohio 44811
Vice President - Finance Attn: Patrick S. Smith,
Hirt Publishing Company, Inc. Investor Relations
(419) 483-3375
Bob Moore
President, Retired Shareholder Services
Willard Foods -----------------------------------
Registrar and Transfer Company
Executive Officers serves as transfer agent and
- ------------------------------------- dividend distributing agent for
Industrial Bancorp's shares.
Lawrence R. Rhoades Communications regarding change of
Chairman of the Board address, transfer of shares, lost
and Chief Financial Officer certificates and dividends should
be sent to:
David M. Windau
President and Chief Executive Officer Registrar and Transfer Company
10 Commerce Drive
David W. Ball Cranford, New Jersey 07016-3572
Senior Vice President - Loans (908) 272-8511
Stephan S. Beal
Senior Vice President - Operations